Framework for Business Analysis and Valuation Using Financial Statements

Chapter 1: Framework for Business  Analysis and Valuation Using Financial Statements

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Key Concepts in Chapter 1 •

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Financial statements are an important source of information to the capital markets and business analysts.

 Analyzing financial statements addresses a number of issues of interest to external stakeholders and company insiders.

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The Role of Financial Reporting in Capital Markets •

Financial reporting provide much-needed information to capital market participants  –

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Financial intermediaries depend upon the information in financial statements to evaluate investment opportunities. Information intermediaries assure the quality of financial statement representations. Relevant and reliable financial information is essential for the functioning of capital markets.

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How Capital Markets Function

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From Business Activities to Financial Statements •

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Financial statements measure and summarize the economic consequences of business activities.  Accounting systems facilitate information quality.  –

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The role of accrual accounting. The need for generally accepted accounting principles (GAAP).  Auditing and the quality of financial information.

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C h a p t e r 1 : F ra m e w o r k f o r B u s i n e s s Analysis and Valuati Using

From Business  Activities to Financial Statements

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Financial Statements and Business Analysis •

Business intermediaries use financial statements to accomplish four key objectives:  –

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Business strategy analysis  Accounting analysis

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Financial analysis

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Prospective analysis

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Business Strategy  Analysis

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Concluding Comments •

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Financial statements are source of widely available data on publicly traded corporations.  Accrual accounting attempts to accurately reflect expectations of economic performance, but requires careful analysis. This chapter has outlined a useful framework for business analysis using financial statements.

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C h a p t e r 1 : F ra m e w o r k f o r B u s i n e s s Analysis and Valuati Using